The Market Lifts E-Star Commercial Management Company Limited (HKG:6668) Shares 34% But It Can Do More

E-Star Commercial Management Company Limited (HKG:6668) shares have had a really impressive month, gaining 34% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 9.5% isn't as attractive.

In spite of the firm bounce in price, E-Star Commercial Management's price-to-earnings (or "P/E") ratio of 8.4x might still make it look like a buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 11x and even P/E's above 21x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

E-Star Commercial Management certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for E-Star Commercial Management

Keen to find out how analysts think E-Star Commercial Management's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, E-Star Commercial Management would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.5% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 8.3% overall drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 14% each year during the coming three years according to the dual analysts following the company. That's shaping up to be similar to the 12% per annum growth forecast for the broader market.

In light of this, it's peculiar that E-Star Commercial Management's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

E-Star Commercial Management's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of E-Star Commercial Management's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

It is also worth noting that we have found 1 warning sign for E-Star Commercial Management that you need to take into consideration.

If these risks are making you reconsider your opinion on E-Star Commercial Management, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.